What is a CMA in Real Estate? The Complete Guide for 2023

A CMA, or Comparative Market Analysis, is an essential tool used by real estate agents and homeowners to determine the fair market value of a property. But what exactly is a CMA, and how can you use it to your advantage in real estate transactions?

In this complete guide we’ll cover everything you need to know about Comparative Market Analyses in 2023 so you can leverage CMAs to make smart real estate decisions.

What is a CMA in Real Estate?

A Comparative Market Analysis (CMA) is a report prepared by a real estate agent that compares similar properties that have recently sold or are currently on the market in the same area. The analysis looks at factors like:

• Location
• Size (square footage)
• Number of bedrooms/bathrooms
• Condition
• Property features
• Sale prices

By comparing the subject property to recent sales and active listings of similar homes nearby, a CMA helps establish a price range for what the property should reasonably sell for

CMAs are useful for both home buyers and sellers:

• For buyers: A CMA gives home buyers perspective on whether a property is overpriced or underpriced. It helps them make a fair offer based on current market data.

• For sellers: CMAs help home sellers price their property competitively. Pricing too high could mean losing buyers, while pricing too low leaves money on the table. A CMA finds the listing price sweet spot.

While a CMA isn’t as detailed as a formal appraisal, it offers a snapshot of a property’s market value as determined by actual sales data in the surrounding area.

Why Do a CMA for Real Estate?

Conducting a Comparative Market Analysis is useful for several key reasons:

• It provides market insight: A CMA gives you an overview of current market conditions – home values, supply and demand dynamics, days on market, etc.

• It helps price a property: The CMA methodology produces a recommended listing price range based on the sales prices of similar nearby homes. This helps sellers price competitively.

• It aids negotiation: For buyers, a CMA shows whether a home is overpriced or not. This information strengthens a buyer’s negotiating position.

• It spotlights value: Unique home features and renovations add value. A CMA quantifies their market value to highlight these to prospective buyers.

• It reflects market changes: Real estate markets fluctuate. A current CMA captures the most up-to-date market conditions.

Bottom line? Comparative Market Analyses help both buyers and sellers make informed decisions backed by tangible data. In real estate knowledge is power, and a CMA arms you with market knowledge.

How to Do a CMA: Step-by-Step

Conducting a Comparative Market Analysis involves gathering and analyzing data on recent home sales, active listings, and the subject property. Here are the key steps:

1. Determine property characteristics

Start by identifying key traits of the subject property:

• Location
• Square footage
• Lot size
• Number of bedrooms/bathrooms
• Condition
• Special features (pool, view, etc)

This gives you a baseline for comparison.

2. Set search criteria

Define your search criteria for finding comparable properties. Ideal comps are:

• Located nearby
• Similar size (within 10-20% of square footage)
• Similar lot size
• Similar age (built around the same time)
• Comparable features and updates
• Sold recently, preferably within the past 3-6 months

3. Search for comparables

Now conduct a search for comparable properties meeting your criteria. Check MLS listings and public records. Target at least 3-5 recently sold comparables, but the more the better.

Also look for active listings and pending sales for additional market insights.

4. Compare property features and sale details

Analyze each comparable home and note:

• Key features (bedrooms, bathrooms, lot size, pool, etc)
• Condition – does it need repairs or updates?
• Sale date and price
• Days on market

Compare these to the subject property details. Make notes on similarities and differences.

5. Make necessary adjustments

No two homes are identical, so adjust for differences between comparables and the subject property:

• Add value if a comparable is missing a feature the subject property has
• Subtract value if it has a feature the subject property doesn’t
• Adjust for condition differences
• Account for market changes if a comp sold months ago

These adjustments make the analysis more accurate.

6. Calculate a value range

Once adjustments are made, calculate a recommended price range using the adjusted prices of comparables:

• Low end of range: The lowest adjusted comparable sale price
• High end of range: The highest adjusted comparable sale price

Also look at averages like price per square foot. The goal is a price range reflecting the subject property’s market value.

7. Compile the CMA report

Put together all your research and analysis into an organized CMA report highlighting:

• Summary of the subject property
• Details on each comparable property
• Adjustments made
• Explanation of methodology
• Recommended list price range

This professional report is what you present to clients.

Follow these steps for a data-driven Comparative Market Analysis.

CMA Tips for Accurate Pricing

When creating a CMA, accuracy is key for reliable pricing. Here are tips for a rock-solid analysis:

• Compare ultra-local – Prioritize recents sales in the same neighborhood. Nearby communities can work too but the tighter the location match, the better.

• Trend analysis – Does the market favor buyers or sellers? Are home values rising or falling? Factor overall trends into your analysis.

• Condition counts – Adjust more value for differences in property condition and home updates. This significantly impacts price.

• Visit comparables – Photos don’t tell the full story. If possible, visually inspect the comparables in person.

• Follow the 70% rule – No property is identical. If a comparable matches about 70% of the subject home, it can be useful.

• CMA software – Use CMA and MLS software like Cloud CMA for automated valuation tools and seamless reporting.

• Recent data – The market shifts quickly, so focus on comps that sold in the past 3-6 months for the most timely analysis.

Get these CMA fundamentals right, and you’ll be able to advise clients with confidence on accurate pricing.

Adjustments in CMAs: A Deeper Look

Making adjustments between the subject property and comparables is key for an accurate CMA. But how do you determine the right value adjustments? Here’s a deep dive into navigating adjustments:

Why make adjustments?

Each comparable will differ somewhat from the subject property. Adjustments account for these discrepancies to reflect what a comparable would have sold for if it was identical to the subject property.

Types of adjustments

Common adjustments made in CMAs include:

• Features: Pool, garage, fireplace, etc.
• Size: Square footage and number of bedrooms/bathrooms
• Condition: Updates, repairs, remodeling, etc.
• Location: Proximity to amenities, schools, public transit, etc.
• Date of sale: Market changes over time

Calculating adjustments

Determining the dollar value for adjustments takes research:

• Look at similar homes with and without the feature to estimate its market value impact
• Calculate price per square foot to determine size adjustments
• Factor in current renovation costs for condition adjustments
• Note differences in nearby home values for location adjustments
• Consider market shifts since the comp’s sale date

Applying adjustments

Now adjust the comparable’s sale price:

• Add value if the comparable is missing a feature the subject property has
• Subtract value if it contains a feature the subject property doesn’t
• Make multiple adjustments as needed

Adjustments make the comparative analysis as close to “apples to apples” as possible. They improve CMA accuracy and should be applied diligently.

Presenting the CMA Report

Your CMA findings are impactful only if presented properly to clients. Follow these best practices when reviewing a Comparative Market Analysis with homeowners:

• Lead with the big picture – Summarize the CMA’s purpose, methodology, and recommended price range upfront.

• Discuss methodology – Explain how you chose comparables and calculated adjustments. This builds credibility.

• Leverage visuals – Use charts, graphs, maps, etc to illustrate trends, comparisons, and your analysis.

• Anticipate concerns – Be ready to address any issues raised regarding your analysis, thought process, or conclusions.

• Listen – Allow the homeowners to digest the information. Actively listen and respond to their concerns and perspectives.

• Focus on goals – Relate the CMA